Enlight Renewable Energy Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 11, 2023

There are 10 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the nLIGHT First Quarter 2023 Earnings Call and Webcast. At this time, all participants are in listen only mode. After the speakers' presentation, there will be the question and answer Please be advised that today's conference is being recorded. I would now like To hand the conference over to our 1st speaker today, Jozsef Levkowitz.

Operator

Please go ahead, sir.

Speaker 1

Thank you, operator. Good morning, everyone, and thank you for joining our Q1 2023 earnings conference call for nLIGHT Renewable Energy. With me this morning are Gilad Yavets, CEO and Co Founder of nLIGHT Niru Uddas, CFO of nLIGHT and Jason Ellsworth, CEO and Co Founder of Cloudera. Gilad will provide some opening remarks and will then turn the call over to Nir for a review of our Q1 results and then to Jason for a review of our U. S.

Speaker 1

Activity. Our executive team will then be available to answer your questions. Certain statements made on the call today, including but not limited to statements regarding business strategy and plans, our project portfolio, market opportunity and potential growth, Completion of development and the company's future financial and operational results and guidance, including revenue and adjusted EBITDA, may be forward looking statements within the meaning of U. S. Federal securities laws, which reflect management's best judgment based on currently available information.

Speaker 1

We reference certain project metrics in this earnings call, and the full information can be found in our earnings release. These statements involve risks and uncertainties that may cause actual results to differ from our expectations. Please refer to our earnings release for more information on the specific factors that could cause actual results to differ materially from our forward looking statements. Although we believe these expectations are reasonable, We undertake no obligation to revise any statements to reflect changes that occur after this call. Additionally, non IFRS measures may be discussed on the call.

Speaker 1

These non IFRS measures should be considered in addition to and not as a substitute for or in isolation from our results prepared in accordance with IFRS. Reconciliations to the most directly comparable IFRS financial measures are available in the earnings release and the earnings presentation for today's call, which are posted on our Investor Relations webpage. With that, I will turn the call over to Gilad.

Speaker 2

Thank you, Youssef, and thank you all for joining us today. NLIGHT delivered record quarterly results In the Q1 and our strong start to the year gives us further confidence in reiterating our guidance for the year. As a brief reminder for those new to our story, nLIGHT is a greenfield developer of utility scale renewable energy projects. We source projects from scratch organically and control the full project life cycle. As the 1st pure play utility scale developer To be publicly traded on a national exchange in the U.

Speaker 2

S, we aim to deliver value to our shareholders by continuing to deliver on our 2 fold objective, executing on above market project returns and above market growth. Our unique footprint across the U. S, Europe and Israel provides opportunity in some of the fastest growing renewable markets in the world. We have significant portfolio diversification, not just in geography, but in technology and revenue structure. We are not only in solar, but are also experiencing storage and wind, and we believe we have a cost of capital hedge.

Speaker 2

Now moving on to our Q1 results. Quarterly revenue grew 103% Year on year to $71,000,000 Net income grew 2 75 percent year on year to 33,000,000 And adjusted EBITDA grew 118 percent year on year to EUR 54,000,000 As we continue to benefit from the ramp up of our operational portfolio, totaling 1.4 gigawatts today. These are record quarterly figures for the group. In comparison to the same period last year, the company added Emeka Baja, Tecama and Bjorn Breguet to its operational portfolio totaling 810 new megawatts. These new projects collectively contributed EUR 32,000,000 of revenue.

Speaker 2

We also benefited this quarter from the indexation of PPAs to our operational portfolio at an average of 6% year on year, which contributed $2,000,000 of quarterly revenue, which is a unique advantage in today's inflationary environment. We are also seeing significant growth In our cash flow generation, the company generated cash flow from operations of $55,000,000 in the 1st quarter, A growth of 3 15 percent year on year. We believe this rapid growth It's poised to continue at pace over the coming years as we execute on the conversion of our mature project portfolio. By 2025, we expect to reach 4.5 gigawatts and 3.5 gigawatts hour of operational capacity Over 3x our current operational capacity. To deliver this growth, we are laser focused on execution.

Speaker 2

First, regarding our portfolio under construction. The 1 gigawatt and 1.7 gigawatt hour of projects we have under construction are moving ahead and scheduled. I would like to hit on some of the major projects. Apex Solar, our first project in the U. S, is concluding construction and on schedule with a COD anticipated by End of the Q2 2023.

Speaker 2

Genesis Wind, the largest renewable energy project in Israel, which we have expanded to 207 megawatts this quarter is in the midst of commissioning and is on pace To reach COD by the end of Q3 this year. At risk of solar, a 360 Megawatts In 1.2 gigawatt hour project in New Mexico, which commenced construction last quarter, has made significant progress. We believe project is on schedule to reach COD by the end of the Q2 2024. Moreover, we made significant progress during the Q1 on the project finance package for Trisco. The company is negotiating arrangements with several lenders to provide both a construction facility Exceeding $800,000,000 permanent bank leverage of $380,000,000 and tax equity of 450,000,000 At competitive terms, the banks include some of the largest and most active financial institutions in the renewables sector, highlighting the strength of the project.

Speaker 2

We are on target to reach financial close before the end of the second quarter and hope to have further details upon closing. In their 1st full year of operations, APES, Genesis Wind and Atrisco are expected to contribute $90,000,000 of annual EBITDA in total. Moving to our preconstruction portfolio, totaling 2.1 gigawatts and 1 point 8 gigawatt hour. The majority of this portfolio is driven by 2 main projects. 1, COBAR, one of the largest solar projects in the U.

Speaker 2

S, totaling 1.2 gigawattsolar and 8 24 Megawatt Hour Storage and 2, Hekama Hybrid, the hybridization of our operational wind farm in Spain with co located solar and storage. Both projects are moving ahead on schedule. Starting with Seobar. In the Q1, the company contracted an additional four 75 megawatts of the cluster. Nearly 1 gigawatts of the project is now contracted, with the remainder of the solar project expected to be contracted with a different counterparty in the coming months.

Speaker 2

The first 8 24 megawatt hour of Storage at the site is expected to be contracted in the coming months as well. Jason will elaborate more in his remarks on This unique and strategic project. The Karma Hybrid has received its interconnection and is in the process of permitting now. Once the permit is secured, the project will be largely derisked, and we will commence procurement of key equipment. Construction is on schedule to commence by the end of the year.

Speaker 2

If we aggregate the contribution of these two projects in their first Full year of operations, Seobar and Hekama Hybrid, we expect to see over $100,000,000 of annual EBITDA. We are also pleased to have further increased the size of our mature project portfolio this quarter by 800 megawatt hours, reflecting the addition of 1 stand alone storage project in Italy and a stand alone storage cluster in Israel, both which are expected to reach COD by 2025. We believe that our growth trajectory is clear, and we are poised to deliver not Just this iconic project, but also our mature project. We believe we will continue to drive strong execution across our development verticals and project financing. Taking a step back on our IPO roadshow, we emphasize Two elements of our strategy, growing faster than the market and delivering project returns that are above market.

Speaker 2

I've just described the growth strategy we are on. I would now like to spend some more time on returns. We are focused on maintaining the return targets we have set, delivering above market returns on our project, and we are pleased with the results. This is driven by: 1, our greenfield development expertise, particularly on interconnection, enabling us to secure attractively priced And 2, game changing benefits under the IRA. In the first quarter, We successfully amended nearly 500 megawatts of PPAs at an average price increase of 30%.

Speaker 2

This is in addition to the nearly 1 gigawatt we amended last year. These price increases are designed to enable us to offset the return compression we have seen from increased CapEx and financing costs. Our ability to secure price increases is driven by the strategic interconnection position on our projects. Our projects are advanced from an interconnection perspective. As of the date of this release, we have nearly 8.7 gigawatts Fast system impact study, which we believe is a unique position in the U.

Speaker 2

S. Market. This also puts us in a strong position to negotiate attractive PPA pricing. We signed another 4 75 megawatts of PPAs this quarter at attractive pricing terms. Our portfolio's returns have also uniquely benefited from the Inflation Reduction Act.

Speaker 2

PTC benefits our U. S. Portfolio in significant ways as it's largely located in the Western U. S. Location that are perfect for solar.

Speaker 2

We are also pleased to share more information surrounding our youth portfolio's presence in energy communities according to the latest Treasury guidance under the Inflation Reduction Act. As of the date of this release, we estimate that approximately 25% Our total U. S. Portfolio is located in energy zones and is therefore expected to benefit from a 10% ITC or PTC header. This will further enhance the returns of such projects.

Speaker 2

We believe our unique portfolio is poised to deliver above market returns 5, higher interest rates and the broader inflationary environment. Today, we are pleased to present our funding capabilities, which is informed by the strong growth and return profile of our project portfolio and supported by our strong financial position after the U. S. IPO. We believe we have sufficient equity capital required to complete the mature product portfolio, which includes 4.5 gigawatts of generation and 3.5 gigawatt hour of storage, utilizing existing resources, including cash on hand and distribution generated from our project, all based on our current operating plan and its underlying assumptions.

Speaker 2

Moreover, we believe we have the financial flexibility to further accelerate our growth thereafter At our stated project deployment guidance of 1.5 gigawatts per year from 2026 based on the current operating plan Through a combination of distributions generated from our projects, proceeds from a sale of a minority ownership stake of our Projects in the U. S, issuance of unsecured bonds or project refinancing without requiring additional equity financing. In our investor presentation posted to the company's website, we have included additional detail on our financing capabilities. In short, we had an excellent Q1 and we believe that our successful IPO has put us in a unique Financial position to capture the massive opportunity we see ahead. I'll hand it off to Nir, who will provide more details on our Q1 performance.

Speaker 3

Thank you, Gilad. In the Q1 of 2020 3, the company's revenue increased to €71,000,000 up from €35,000,000 Year over year, a growth rate of 103%. The growth was mainly driven by the revenue contribution of new operational projects as well as the insertion indexation embedded in the company's PPA for projects that were already operational last year. In comparison to the same period last year, the company added Emeka Baja, Hekama and Bjorn Bank to its operational portfolio, Totaling 8 10 megawatts, this project collectively contributed $32,000,000 of revenue. The company also benefited from inflation indexation embedded in its PPAs, which contributed an additional €2,000,000 of revenue This reflected an average indexation of 6.3% across 4 83 megawatt of PPAs.

Speaker 3

42% of the company's operational projects possess PBA with annual inflation indexation, which we believe is an advantage in today's inflationary environment. Finally, the year over year increase was So partially driven by the recognition of all profits from the sale of electricity by the Halus Yard project as revenue, following its reclassification out of financial assets in the Q2 of 2022, which contributed an additional $2,000,000 to the revenue in the Q1 of 2020. This positive impact totaling $36,000,000 were offset by weaker currency exchange rate, particularly between euro to U. S. Dollar, which had a $2,000,000 impact.

Speaker 3

In the first Quarter, the company net income increased to $33,000,000 up from $9,000,000 year over year, a growth rate of 2 75%. EUR 40,000,000 of the growth was driven from new projects. The residual growth of EUR 11,000,000 was driven from interest income on deposit As well as foreign exchange impacts threatening U. S. Dollar relative to shekel on our cash on cash equivalents.

Speaker 3

Moving on to adjusted EBITDA. In the Q1 of 2020 3, the company adjusted EBITDA more than doubled to CAD 54,000,000 compared to $25,000,000 for the same period in 2022. The increase was driven by the same factor, which affected our revenue increase in the same period, offset by EUR 3,000,000 increase in overhead as the team scales to accommodate rapid growth. The Q1 benefited from higher EBITDA on Project Recama as the vast majority of the production was hedged at high prices. In addition to the above, the company sold $3,000,000 of electricity in projects treated as financial assets in the quarter, which under IFRS we are required to account for as financing income or other non P and L metrics.

Speaker 3

Moving to 2023 guidance, we are pleased to affirm our outlook for 2023, including revenue between 2.90 And EUR 300,000,000 adjusted EBITDA between EUR 188,000,000 and EUR 198,000,000. I will note that electricity sold by our financial assets is not included in our financial guidance. I will now hand it over to Jason, which will go into detail on some of the key themes we are seeing in the U. S.

Speaker 4

Thank you, Nir. It's great to be part of the nLIGHT team at such an exciting In the U. S, the company delivered meaningful progress across its large portfolio during the quarter. Gilad mentioned Apex and Atrisco, Both are in construction and progressing on schedule. In Montana, Apex Solar is on track to achieve commercial operations by end of Q2.

Speaker 4

In New Mexico, construction crews are advancing Atrisco Solar on schedule for a Q2 2024 Completion. With Apex and Atrisco, the company is demonstrating ability to maintain strong project economics and predictable execution, all with attractive project Financing. In Arizona, the company is making meaningful progress on the Seobar project at 1200 megawatts of Solar and 8 24 megawatt hours of storage or ultimately 4 gigawatt hours of potential storage, CEOBAR is a huge project. As Gilad noted, we successfully contracted an incremental 4 75 megawatts on the project, Bringing the total contracted solar at Ciel Bar to nearly 1 gigawatt. A PPA on the remaining 200 megawatts is presently under negotiations And that PPA will add the first 8 24 megawatt hours of storage on the project.

Speaker 4

More details will be announced in Q3. On the development front for Ciel Bar, the project has primary land control and permitting in place. The system impact study for interconnection is complete and the Facility study is nearing finalization, but moving slowly. By signing and funding an E and P or engineering and procurement agreement with APS, We've implemented a mechanism that allows us to advance interconnection engineering and long lead time orders despite possible delays Finalizing the facility study. C O Bar is expected to start construction in the Q4 of 2023 And achieve COD in phases through 2025.

Speaker 4

Discussions are underway on contracting all or a portion of the remaining 3.2 gigawatt hours of Storage capacity at the project. Seobar lays the foundation for completing a series of other large projects in Arizona And builds on relationships we have with Arizona utilities. In Arizona, we see a combination of lots of sunshine, good land, Great utilities and strong demand for both generation and capacity. All that coupled with our large Arizona development portfolio Signals great things to come for the company in the Grand Canyon state. Across the portfolio, we continue to make significant progress on project development, Especially interconnection, with more than 8.7 gigawatts of projects passed system impact study that's incrementally 240 megawatts versus where we were in Q4.

Speaker 4

The company believes it is well positioned to accelerate its growth in every one of its U. S. Target markets. While some interconnection delay may be unavoidable, the advanced stage of our projects allows us to move forward confidently on scheduled milestones. Knowing the utilities and their unique transmission rules and processes allows us to address most delays as they arise.

Speaker 4

One example is the use EMP or engineering and procurement agreements to keep projects on schedule. Pricing power remains strong given the advanced stage of our interconnections and related development versus the market. We have an amazing crop of maturing projects and we look forward to updating the investor community as major milestones are reached, especially as PPA awards are converted into signed PPAs. We see significant demand for our projects With particular emphasis on storage. Based on the published U.

Speaker 4

S. Treasury guidance, the company can now estimate the percentage of its U. S. Portfolio, which may benefit from the Energy Community Tax Credit Adder under the Inflation Reduction Act. The Energy Community Adder gives a 10% multiplier to the project's PTC value And a potential 10% addition to the ITC rate.

Speaker 4

The company estimates that approximately 25% of its portfolio in the U. S. May qualify under the guidance. Note that the 25% estimate does not include any projects that may qualify as brownfield sites. We are reviewing brownfield possibilities in detail and we'll have a more informed view by end of quarter.

Speaker 4

Moving to supply chain, the company's diversified sourcing strategy continues to meet its module supply needs in the United States. The company has the right to purchase up to 2 gigawatts of modules from India With delivery through 2025, we also have access to additional supply from Southeast Asia. Our battery cell source is now qualified in factories, in international factories, and we are seeing strong progress in reaching our goal to have qualified domestic supply for 2024 deliveries. Our procurement strength is proving to be a source of strategic advantage in negotiating project contracts with utility off And demonstrating to financing parties we can hold construction schedules. With that, I'll turn it over to the operator for questions.

Speaker 4

Operator?

Operator

Thank you. Now we're going to take our first question. And the question comes from the line of Max Strauss from JPMorgan. Your line is open. Please ask your question.

Operator

Mark Strouse, your line is open. Please ask your question.

Speaker 5

I'm sorry. I was on mute. Sorry about that. Wanted to go back to the comments about improving returns. So you signed 4.70 No, 480 Megawatts with increased pricing that's in addition to the 1 gig from last year.

Speaker 5

Can you just talk about when those price increases flow through into the financials? And how does kind of The pace of these negotiations, how does that compare with kind of your targets that you were planning back at the time of the IPO? And then a quick follow on would be just kind of as you look at the portfolio now, how many additional megawatts are out there that you think you could still renegotiate

Speaker 2

Yes. Hi, Mark. Good morning. It's Gilad. I'll start With a general overview and Daniel said can complement me on a walk through on the numbers.

Speaker 2

But in general, Some of the PPAs we have amended are already influencing like the one in Bjornmejets in Europe. All the PPAs amended in the U. S. Start to impact results as soon as 2024 when Atrisco It's scheduled to become operational first half around June 2024 and then Going forward, towards 2024 2025. So we will see the impact Still outstanding in the next 1 or 2 years.

Speaker 1

And just to add, Mark, to yourself, we've got 550 megawatts roughly of further PPAs under negotiation. We expect increases there to be roughly in the range of 20% to 25% In accordance with, I think, the commentary we've given across the IPO process.

Speaker 5

Okay. Thank you. And then maybe a question for Jason. Just thinking about the energy community, Adders, So I understand there's still some analysis on the brownfield side, but just overall comments that you could provide on What that process looks like? When everything is known for sure?

Speaker 5

When you start receiving that funding? Is it retroactive? Any other color would be helpful.

Speaker 4

Yes, absolutely. Thanks, Mark. So On the Energy Community side, we've been through the analysis based on the treasury's guidance. And as noted already, Roughly 25% of the company's portfolio is located in energy community zones Or in locations that will qualify. On the brownfield side, there is further analysis required at each site, really site by site And in more detail and we're working through that with outside legal help and progressing quickly in terms of Understanding where those projects sit.

Speaker 4

Now what that impact is to each project will be realized in the future As these projects are either in construction or not yet in construction, So there's really a situation here that reflects growth in the future and revenues to be realized in the Future not really something that we need to look at looking back and capturing those benefits historically.

Speaker 1

Just maybe to jump in Mark as well to add to Jason's commentary. One of the projects we have which sit in the energy community Is 1.2 gigawatts of solar and 4 gigawatt hours of storage. Assuming 10% atorontheptc, We're talking probably a value of $57,000,000 just on the solar addition. And then on the storage, for 4 gigawatt hours of storage, It would be an NPV an extra 10% on a storage cost of $120,000,000 So it has a significant impact on project returns And particularly projects with significant amount of storage in our portfolio.

Speaker 5

Okay. Very helpful. I'll take the rest offline. Thank you.

Operator

Thank

Speaker 4

you.

Operator

Now we're going to take our next question. And the next question comes from the line of Julien Dumoulin Smith from Bank of America. Your line is open. Please ask your question.

Speaker 6

Hey, good morning team. Thank you guys very much. Appreciate it. Just following up on the last set of questions, if you don't mind. First off, can you talk a little bit about Financing plan today, just in terms of potentially selling assets down versus call on remaining equity that you guys have on the balance sheet.

Speaker 6

Just thinking about The geography shifting and any thoughts about that? And then related if you can, also you guys updated your pipeline Here on development, can you comment a little bit on the pace of activity just to sign new deals, just given the ambiguity around domestic content? Do you expect some kind of true up or acceleration later this year as you think about the counterparty willingness to engage without that clarity?

Speaker 2

Yes. Hi, Julian, Gilad. I'll start with answering the question on the final strategy and then Jason, why won't you Elaborate on the development questions. So regarding the financing strategy, I think we've reached An excellent point in our I think in our life cycle where we have created a kind of an autonomous machine with our mature portfolio where From one side, we have a mature portfolio of 4.5 gigawatts and 3.5 gigawatt hour of storage that is already fully funded. So if you walk through our presentation, we can see that we need additional EUR 800,000,000 of investment in order to Complete the mature portfolio, but we have availability for 850 already.

Speaker 2

And the outcome of that is the portfolio that Create for us or generate for us distributions of $155,000,000 per year. If you reduce from that the overall overhead of the topco corporate and so forth, which are around EUR 55,000,000. So you reach a free cash flow that is distributed on nLIGHT parts only of $100,000,000 per year. And if you translate this 100,000,000 To our growth plan, it means that together with minority sell downs, we would be able to Autonomously funding of a pace of around 1.5 gigawatts without per year, Without requiring additional equity raise or any other mean. And just the quick Calculation is that the cost or the average, the blended cost for us to construct 1.5 gigawatts between the geographies will be around roughly €900,000 per mega Or €900,000,000 per gigawatt.

Speaker 2

We believe that the weighted average equity Check that will be required will amount to around 20% of this sum. So altogether, in order to contract 1.5 gigawatts per year, We will be required for EUR 270,000,000 per year. Now if you look on our what this machine of our mature Portfolio is creating, so we get this $100,000,000 from distributions. And then if we perform minority sell downs On the 1.5 gigawatts, so under an assumption, which we believe is reasonable fair Of a premium of around 200 ks per megawatt, And if we sell down only 30% of the holdings, so we remain the majority holder And the control order, of course, of our portfolio, we keep growing, but we reach this, I would say, sources of EUR 270,000,000 Per year to match the equity required to fuel this growth. So we believe that the combination of the conversion rate of the company Bringing us to this point of maturity with our portfolio and the U.

Speaker 2

S. Listing, the raise of 290,000,000 It helped us to create this machine that can help us now to grow With our current, I would say, current resources plus a strategy of minority Then of course, we have additional tools, so we have a lot of flexibilities in the market that we can raise if we want to further accelerate the growth Or to blend it with other means, but I think this brings us to a very good point right now. And maybe Jason can elaborate on the development side now.

Speaker 4

Yes. Thanks, Gilan. And great question, Julian, on the Development portfolio. So we have several awarded PPAs and we are actively and that's both in solar and storage. And we're actively working through negotiations to finalize and sign those PPAs.

Speaker 4

We'll have more information to announce As those are finalized and project milestones have been achieved, on the front of domestic content And the impact on those PPAs and potential delays in terms of signing, all of that pricing has been Negotiated and finalized in advance of the domestic content. So we have not incorporated Into our analysis nor into the pricing any of that domestic content benefit. And yet those so we see that as upside and offtake have finalized with us the pricing on those projects. So None of that is again dependent on the further clarification we expect to receive on the domestic content side.

Speaker 6

Excellent. Thank you. And if I can, just to come back, I think your storage development number was up like 58%, if I see this right here. You want to just elaborate what did you guys see or find here in the development side of the world? Is this tied to California?

Speaker 6

Or what are you guys seeing on that front that would push it that much

Speaker 1

So maybe I'll take that. What we're seeing is a lot of the conversations with utilities Maybe before we're just solar, but now every conversation there's a talk about solar and storage. So on an interconnection positions that we have Where we initially were thinking of just doing solar, now much of that

Speaker 4

has been upscale for storage as well. And I would add just quickly as it relates To storage here in the West, there is a very a maturing demand for storage and capacity. So that theme that Josef is pointing to of a consistent sort of solar plus storage Demand is playing out really in all of our conversations in the West where the bulk of our portfolio is concentrated.

Speaker 6

Excellent guys. Thanks for the time.

Operator

Thank you. Now we're going to take our next question. Just give us a moment. And the next question comes from the line of Maheep Mandloi from Credit Suisse. Your line is open.

Operator

Please ask your question.

Speaker 7

Hey, good morning and congratulations on the quarter. Just a question on the guidance. So you saw a nice Growth in revenues in Q1 and you've also increased your PPAs in some projects here. So just curious, Could you see any upside to the guidance over here? Or I just want to understand the drivers for guidance going forward?

Speaker 2

Good morning. Thank you for the question. So first, yes, we are very confident on the results and very satisfied with the results. Having said so, we are still on the Q1. Of course, we enjoyed some high electricity prices in Europe This quarter, but looking forward since we see also some volatility, so we would like to be careful and we'll wait at this time with changing the guidance.

Speaker 2

Of course, we are very confident with the current guidance.

Speaker 7

Got it. And then for the U. S. Portfolio and your Slide 9 is pretty helpful to understand that. But just curious for the other projects, is there any Are you waiting for any other details on those projects?

Speaker 7

Or could they qualify in the future? Or do you have item 2, 5, 10 to not qualify over here.

Speaker 2

So the question was on the brownfield, Maheep?

Speaker 7

Yes. From Bronson, yes.

Speaker 2

Yes. So in general, Jason, just related, we are working On a classification right now of the project where we believe there is a brownfield potential in order to get the tax equity out there. So we hope that we will have news on that soon.

Speaker 7

Got it. And then just one last question for me. Just looking at the Slide 12 on the economics of the 1.5 Some cash uses and sources. If I do the math, that somewhat implies a 6% cash yield for your Minority stake investor, does that sound reasonable or do you expect or am I missing something else over there?

Speaker 1

No, it will be a significantly higher cash yield there on a sell down. We're thinking high single digits For a potential sell down, cash on cash.

Speaker 7

I appreciate that. I'll follow-up on that offline. Thank you.

Operator

Thank you. And wait for a name to be announced. Now we will take our next question. And the next question comes from the line of Justin Clare from ROTH MKM. Your line is open.

Operator

Please ask your question.

Speaker 8

Yes. Hi. Thanks for taking our questions. I guess just first on Q1, your cost of sales actually declined in the Quarter relative to what we saw in Q4, despite the higher level of revenue that you had achieved. So just Wanted to check-in on that, what enabled you to kind of achieve that lower level of cost and how should we think about that going forward from here?

Speaker 2

Yes, definitely. We see an increase in the margin Both on the profit and the EBITDA rate, it's impacted by the fact that during the last year, we have another project in Europe Come online, mainly Recama, which enjoy from a high returns due to the high electricity price in Same. And this is why you see an improvement in margin, both in the profit and the EBITDA.

Speaker 8

Got it. Okay. And then just shifting to the U. S, wondering, Can you talk more about how you're managing your equipment purchases for U. S.

Speaker 8

Projects? Given that we don't have guidance yet on the domestic Content adder, are you holding back on making some purchases at this point until you have more clarity? Wondering if you just elaborate a little bit more on the strategy there?

Speaker 2

Yes, Jason. So should you take this answer?

Speaker 4

Yes, I'll take that. Yes, great question. Looking at the U. S, of course, Supply chain is a major strategic decision for each project. We have roughly 2 gigs of module supply secured out of India As we require that, additional module supply in Southeast Asia.

Speaker 4

So in general, those

Speaker 2

Jason, can you hear us? You were disconnected a little bit. So I can try to take the answer and then see if the line is improved. So in general, we will divide it to the solar panels and the batteries. So in the solar panels, Jason said, We are building on the supply coming mainly from India right now with very good supplier, And we are complementing that with ADCVD eligible panels coming from Southeast Asia Under the decree.

Speaker 2

And on the battery side, as we mentioned last discussion, We have purchased the batteries for the very large project in Atrisco from a U. S. Supplier. Therefore, I would say also controlling the risk of trade with China this way. And Jason, if the line is now better, You can elaborate on that.

Speaker 1

Let's go to the next question, please.

Operator

Yes, of course. Thank you. Now we will take our next questions. And the next question comes from the line of David Parr from Wolfe. Your line is open.

Operator

Please ask your question.

Speaker 9

Hi. Good morning. Can you guys discuss Your unlevered and levered returns in the U. S, are they unlevered returns expected to be consistent with the 8% to 10.5% You outlined for Atrisco and Colbar going forward. Do you see any potential uplift or degradation in that?

Speaker 9

And then maybe just some color on levered returns?

Speaker 2

Yes. So we do see this trend continuing With a high single digit return on unlevered basis also in the U. S, mainly Because of strong fundamentals of the projects, the higher PPAs and, of course, the IRA Hey, Erez. And we do see even some upside from energy, community and local content That may still be in addition to what I just mentioned in terms of the levered return. So at this environment of high single digits, even with the higher interest rates In the current financing in the next 1 or 3 years, it will still result in nice double digit returns.

Speaker 2

And again, with the upside maybe Very nice team. And of course, in the future, when interest rate hopefully We'll go slightly down. So I think the spread will be even a little bit better.

Speaker 9

Okay. Just maybe quickly on the financing plans. Can you maybe elaborate on the 30% minority interest assumption and as well as the 200 kilowatt premium that you guys illustrate here? Is that Just maybe where are you getting that from? Why 30%?

Speaker 9

Thank you.

Speaker 2

Yes. So we believe that This is, I'd say, a good trade off and a good balance from, I would say, our strategy To continue and use the PPA and developer combined Business model, which we believe brings the highest returns and the highest differentiation in the market, while fuel recycling They require the amount of equity to fund our business. And I would say, having said so that if you look on our average holding in our Current project in Europe and Israel, it matches this principle of 70%. Currently, all the portfolio in the U. S.

Speaker 2

Is held entirely by our group. So it leaves us this flexibility of matching the average holding that We currently have and still managed to fund our business in a very good manner.

Speaker 1

And in terms of the $200,000 per megawatt assumption, that's Effectively the midpoint of the $180,000,000 to $220,000,000 that we expect to receive on a recent project sale, Project Saturday, which we We're under contract to sell. So that guides us and we see kind of what's going on in the market today. Okay, great.

Speaker 9

Thank you.

Operator

Thank you. There are no further questions. And I would like now to hand the conference over to the management for any closing remarks.

Speaker 2

So thank you all for joining the call. We'll be in New York next week for the Credit Suisse conference. So we look forward to connecting with you and good morning.

Operator

That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.

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Earnings Conference Call
Enlight Renewable Energy Q1 2023
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